A recent study by Mercer’s 2011, Cost of Living Survey claimed that New Delhi (rank 85) is India’s most expensive city followed by Mumbai (rank 95). The Brihanmumbai Municipal Corporation (BMC) seems to have been taking steps to improve Mumbai’s rank and have designed a new policy which will hike property prices in Mumbai by atleast 15-20%
BMC has finalized new building approval guidelines for Mumbai based on recommendations of the state-appointed Justice Parkar Committee. The new guidelines aim to make the approval process more transparent and high-rises safer. The new policy also proposes to limit concessions allowed to developers (extra FSI) and levy higher charges for availing them.
What is this new policy under making?
Developers in Mumbai currently avail 20-40% extra FSI for free or at minimal cost. These areas are included in the super-built-up area (1.4-1.7x carpet area), which the customer eventually ends up paying for. Charging for the extra FSI at current market rates would increase the total project cost by Rs1,500-3,000 per sq. feet depending on the location of the project
What happens to the Mumbai residential market?
Approvals for projects have been slow since past two quarters; the new policy is expected to further delay the process as BMC might decide to re-look all projects based on new guidelines
Project Developers will be required to change their layouts / building plans if the additional area exceeds 25% of the built-up area, which would further delay new project launches.
Slowdown in new launches would support the high property prices and prevent any significant price correction
The implementation of new guidelines will have significant impact on the Mumbai real estate market as it may lead to substantial increase in project costs for developers.
Given that the developers have been reluctant to cut prices in the recent past despite a significant slackening of demand, this move is unlikely to act as an incentive to reduce prices in a hurry. In short, the implementation of these guidelines may well prolong the slowdown in the market and keep the property prices high enough.
I think the next Mercer survey will definitely claim Mumbai on a higher rank if this policy is implemented. What say?